Cash back cards, as the name implies, offer one perk no other cards do: money in your pocket.

Typically, this rebate is around 1%, but it can go as high as 10% during promotional periods at partner retailers. Or a cash back card can give the new cardholder a lump sum credit / cashback into your account when you get approved for the card or start using the card in a store.

If your spending is low, the cash back may not be enough to offset the higher annual fees associated with these cards. If you anticipate carrying a balance, they may also not be the right choice for you as they do come with higher interest rates. But with careful consideration and monitoring, these cards could be the most seamless way to get something back from using a credit card. In addition, some of these cards also come with sign-up perks like bonus points.

The actual cash back rewards vary from card to card: some offer a set percentage on all spending; others have preferred merchants that yield a higher rate than other purchases, and if you shop with a particular store this could be the best option for you even if you don’t get anything back elsewhere. There are also tiered programs, in which the size of the purchase determines the rate of the cash back. Note that many cards do have a cap on how much you can receive each year.

Q&As about Cash Back Credit Cards from customers

Q: What’s the difference between a cash back and a rewards credit card?

Cash back cards, instead of earning points for rewards, pay money back into your account. Put simply, this means you save money on your monthly expenses, but individual cards pay cash back for different types of purchases.

Q: Do they all work the same way?

No.

The most straightforward cash back credit cards pay back a fixed rate percentage on all purchases made. This can provide an easy form of reward, without the need to focus on spending at specific stores or working out how best to increase the rate of cash back. Selected retailer cash back cards provide a bonus rate for shopping at participating outlets. Some credit cards also feature a tiered program, in which different size purchases receive a higher or lower percentage cash back rate depending on the particular deal.

Or another way that cash back cards work is to give new cardholders a lump sum credited to your account when you get approved for the card or when you start to use the card in a store.

Q: How much cash back can I expect to earn?

While the rates vary greatly between different offers, you can typically expect to receive 0.5% or 1% cash back on a flat-rate deal, rising to 5% or even 10% with participating retailer programs or during bonus periods.

Q: Is there a cap on how much is paid back?

Capping is quite common in some shape or form. Before you apply, check to see if cash back is eligible for all purchase, or just all purchases up to a preset value.

Q: Can I earn cash back on balance transfers, cash advances and travellers’ cheques?

Cash back is only applicable to purchases. Cash advances, buying foreign currency and travellers’ cheques, balance transfers or gambling payments do not earn any cash back.

Q: Can the money be used to reduce an outstanding balance or pay for the annual fee?

Yes, quite often you can use it to pay off the outstanding balance or the card’s annual fee, but not all cards allow it.

Q: What’s the best way to use a cash back card?

Like with any other credit card: Pay off your card in full and on time every month, otherwise the interest and late fees you pay on the outstanding balance will reduce the true value of the rewards.

Q: How can I maximise the rewards?

One of the easiest ways to maximise what you get back is to move regular bill payments over to the card, e.g. telephone bills and utility bills. Estimate carefully whether your credit limit is high enough to facilitate the additional spending.

Q: What other factors should I consider while selecting a cash back card?

It is very important to look at all the features of cash back credit cards before applying to make sure the deal will be genuinely beneficial:

Annual fee: Calculate your estimated annual spend and how much cash back this earns, and compare this figure with the annual fee. If the annual fee is greater, then you are not going to get any benefit from the card.

Interest rate: Cash back credit cards often feature a relatively high interest rate, which is applied to any outstanding balance on your account. If for any reason you are unable to pay your monthly bill in full, a high rate could quickly negate the savings you make on the cash back.

Introductory offers: Many cash back cards offer an introductory promotion of a bonus cash back rate for an initial period, typically a few months. Check to see how the rate changes at the end of the promotion.

Balance transfers: These cards also often feature the option to transfer a balance so you can repay your existing credit card debt at a lower rate. You should be aware that balances transferred do not earn any cash back, and if your priority is repaying your debt, you are probably better off choosing a different type of card with a better balance transfer deal.

Restrictions and penalties: Banks often impose restrictions on how much can be earned per month, the types of purchases that are applicable and penalties for missing payments or misusing your account. Study all the terms and conditions to ensure you can get the best return.